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6 Dec 2007 : Column 981

Local Government Finance

12.42 pm

The Minister for Local Government (John Healey): With permission, Madam Deputy Speaker, I wish to make a statement about local government finance in England. For the first time ever, this is a three-year settlement. I am today able to confirm for each authority for each of the next three years not only allocations of formula grant but allocations of the new working neighbourhoods fund and 60 other specific grants, from eight Government Departments.

In total, Government revenue funding for local authority services will be, in the years 2008-09, 2009-10 and 2010-11, £70.4 billion, £73.5 billion and £76.7 billion. These are increases of 4 per cent., 4.4 per cent. and 4.3 per cent. respectively. This continues the sustained real-terms increases for local government under this Government. By the end of this comprehensive spending review period, local government will have received a real-terms grant increase of 45 per cent. since 1997.

Formula grant, which includes revenue support grant, redistributed business rates and the police grant, will total in each year £27.5 billion, £28.2 billion and £29 billion, representing increases of 3.6 per cent., 2.8 per cent. and 2.6 per cent. respectively. Every authority will receive a formula grant increase in every year. In addition, we expect of local government the same 3 per cent. efficiency savings each year as the rest of the public sector. Delivering that would mean that councils would have an extra £4.9 billion over the spending review period, which they could use to improve services or to cut council tax pressures.

We have worked closely with local government and its associations over the past two years to assess cost pressures and the scope for efficiencies. This settlement takes account in particular of the pressures on adult social care and on waste. Local government told us that it wanted certainty, flexibility, equity and stability in funding, all of which are delivered by this settlement. On certainty, we are providing a three-year settlement, not just for the core grant but for 61 other central Government grants and for regeneration funds. On flexibility, we have pooled 38 of the 61 specific grants into the new area-based grant, worth £4.7 billion by 2010, three quarters of which was previously ring-fenced but will be no longer. We are also transferring £900 million a year from other specific grants into formula grant. Local government also wanted less bureaucracy from central Government, so we have radically streamlined the new performance framework for local government, with a single set of under 200 national indicators, down from about 1,200.

On equity, we consulted local government over the summer on making the method of grant distribution fairer. My conclusions are set out in the further consultation paper that we are publishing today, but let me highlight these points. Following a major review, we were able to introduce a new and improved formula in each of the areas of social care in 2006. For the past two years, we have been damping two of those formulae. I now propose to end the additional damping and fully to implement the social services formulae.
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The overall system of grant floors, which we will retain, will ensure that that unwinds quite gradually over this and the next spending review periods.

I also propose to make the system fairer to authorities with a relatively low council tax base. Those authorities will have much greater difficulty than others in coping with spending pressures. I therefore propose to increase by 2 per cent. the proportion of the blocks for relative needs and relative resource within the available total.

We have made significant progress with regeneration in many of the most disadvantaged areas of the country. The new £1.5 billion working neighbourhoods fund replaces the neighbourhood renewal fund and builds in the Department for Work and Pensions deprived areas fund to create a single fund at local level. As we set out in the sub-national review, we are concentrating that funding on tackling worklessness in the most deprived areas. Sixty-six local authorities will receive funding from the working neighbourhoods fund for three years, and the 21 authorities that currently receive neighbourhood renewal funding but do not qualify for the new fund will get two years of transitional funding.

On stability, we consulted on aspects of the area cost adjustment. I propose some changes, to reflect more recent evidence, in the weights given to labour and business rates costs. However, I have decided not to implement any changes in the geography of the area cost adjustment. The consultation proposals covered only a few areas, and the financial turbulence involved did not seem justified by the relatively minor refinements that would result. I therefore intend to take advantage of the next three years to conduct a full review of the area cost adjustment, which will begin after the House has debated and approved this settlement.

I also propose no change to the expenditure base of the formula for fire and rescue. I have concluded that the last few years have been an untypical period for the service, making spending patterns an uncertain base for a formula. Again, I propose to conduct a thorough review of the formula. That will begin in the new year. Grant floors damping is the main way in which we ensure stability of funding for councils over time. Though some argued for the opposite, we will continue with the system of floors, which ensure that every authority receives a formula grant increase in every year of the comprehensive spending review period. In setting floor levels, I have struck a balance between providing an increase for all authorities and allowing formula changes to come through. For each of the three years the floors will be: for fire and rescue authorities and shire district councils, 1 per cent., 0.5 per cent. and 0.5 per cent.; for authorities with responsibilities for education and social services, 2 per cent., 1.75 per cent. and 1.5 per cent.; and for police authorities, 2.5 per cent. in each year.

To deliver this three-year settlement, we need to use the best and latest data available on a consistent basis across all authorities and we need to deploy it at the time we calculate the three-years figures. For population, those are the population projections produced by the Office for National Statistics in September, which take advantage of improvements in the way in which migrants are counted. The majority of the councils in our consultation wanted us to use those figures.

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In recent years, however, the UK has seen significant demographic changes, not least in the pattern of people’s mobility. Those changes clearly create new measurement challenges. We are determined to build on recent improvements, while recognising that there is no single, simple or swift solution to those challenges. I can confirm today that the national statistician will now bring together central and local government to work on ways to improve population survey data and to make greater use of administrative data.

Ten successive years of above-inflation grant increases from this Government—continued throughout this spending review period—plus tough capping action have helped bring down council tax increases. Keeping council tax under control remains a high priority for the Government. We expect the average council tax increase in England to be substantially below 5 per cent. next year. Let me be clear: we will not hesitate to use our capping powers as necessary to protect council tax payers from excessive increases.

This is a tight settlement, but it is fair and affordable. It delivers the certainty, the flexibility, the equity and the stability that local government wanted. We know councils are capable of innovating, managing change and improving efficiency without having a disproportionate impact on their council tax payers. The challenge and onus now is on councils to demonstrate the leadership to deliver just that. I commend the statement to the House.

Alistair Burt (North-East Bedfordshire) (Con): I begin by welcoming the Minister’s courtesy in sending me a copy of his statement. The technicalities of such a statement do not come alive in an instant, so it is appreciated when we have a little time to prepare. There was a bit of a glitch in getting the statement to us, but we will not make too much of that.

The Minister, who is a fair man, will know that his statement today will have been heard with more than disappointment in town halls up and down the land—not to mention the massive silence behind him—and not just by councillors themselves, but by the communities they represent and those who will be affected by what he has said and what he has not said today. Will he confirm that he has just announced another round of inflation-busting council tax increases for the long-suffering taxpayer? Over the last decade, we have predicted rises in council tax, which successive Ministers have dismissed at the Dispatch Box. Each year, the accuracy of our predictions has comfortably outscored the Government’s.

Does the Minister agree with the leader of the cross-party Local Government Association who said this morning that he was estimating inflation-jumping 4 to 4.5 per cent. increases? Will he confirm that the three-year settlement means an extra £208 on the bill of a band D home—a whopping increase of 122 per cent. under Labour? That will push council tax at band D through the £1,500 barrier by the next general election. I do not think that the Minister, who at the conclusion of his statement seemed rather proud of 10 years of Labour, has that much to be proud about. Is he aware of a survey released by a leading building society today showing that under this Government council tax has become the most unpopular tax in Britain—a pretty competitive league to top?

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Conservative Members welcome the move to three-year funding, which this statement represents. Making this change must be helpful in planning budgets, but it also makes crystal clear the precipice that the Government are pushing local authorities over. The good news about councils having some certainty in their budgets is balanced by the bad news that they now know what it is they have to be certain about: a front-loaded increase of 1.5 per cent. this year, with rises of only 0.7 per cent. and 0.6 per cent. for the following two years at best, or just 1 per cent., 0.1 per cent. and a cut of 0.1 per cent. if private finance initiative commitments are removed. This statement is a cunningly worded invitation for reduced services from councils and higher bills for taxpayers. Does the Minister acknowledge that, tough as the first year is, the real screw and ratchet is applied in years two and three?

For young and old, and especially for those in receipt of elderly care and those paying council tax, today’s statement marks a further chapter in the long, slow but certain betrayal of people’s hopes and expectations from this Government. They will listen not just with disappointment, but with real anger as the small print unfolds in classic Labour fashion over the next few days and weeks.

The headline 1 per cent. increase in real terms over the next three years will be only the first meaningless figure to fall. Will the Minister confirm that that figure bears no relation to the cost pressures being suffered in, for example, adult social services, where expected real-terms expenditure growth appears to be double the funding increase provided? The “gradual unwinding” of controls on social services spending that the Minister speaks of in his statement does not address the urgency of the problem and will leave floor authorities in London and the south-east much worse off. Is the Minister aware that one head of social services has told the Local Government Association that these pressures require a 4.6 per cent. real-terms increase, and, tellingly, that the service provided by that council is now

Other services such as waste and highways are running similarly ahead of the measure of inflation used. Will the Minister introduce a measure of inflation relevant to the services provided by local authorities and use that measure instead? Will he confirm that the Government are cutting the amount of funding given to the local authorities business growth incentive scheme—a cut of £850 million over the next three years? Is that not just a back-door way of forcing councils to raise the money through new supplementary business rates, increasing the burden of taxation on firms? Have the Government any awareness of what is happening to shops and businesses out there on the high street and how these rises will damage them?

We acknowledge some limited progress towards allowing more apparent local control over budgets through the release from ring-fencing and other controls of some £5 billion by 2010-11, but does the Minister agree that once again there is sleight of hand as the money is being shifted into an opaque pot called “area-based grant”, with a say not only for a council, but for other public bodies and Government’s own regional offices? Can he confirm that on table 2 of specifics and general grants
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2010-11, the area-based grant actually drops by 2.4 per cent.? Given that this grant has been trumpeted as an important new initiative, why is there to be a significant reduction?

The Lyons review, about which we have heard much in previous statements, but nothing at all today, said that

Michael Lyons said that because he felt an unanswered question was undermining public confidence in local government. Who is really responsible for the rises in council tax: is it the council or is it the Government? Each blames the other, so with the public losing out in the tit-for-tat discussion, Lyons proposed that we should tackle this with a simple, transparent mechanism. Why is there nothing in the statement about that and why is no initiative being taken?

We have come to learn that there are frequently reasons why the Government choose not to reveal information to the public—usually because people will not like what they are not being told. Is it not the case that the Government have chosen to dismiss this recommendation out of hand, because they know the answer to the question about who is responsible for nearly doubling council tax during their time in office? It is a case of “Best when we are putting up taxes; best when we are blaming others; best when we are Labour”— [Interruption.] I will get better back-up next year.

What representations has the Minister received about the new national concessionary fares scheme—merely the latest example of a national idea underfunded by this Government? Does he realise that the scheme makes financial sense for councils only if no passengers apply for it?

Why is the Minister only now bringing together local and national Government to discuss population movement and migration? This phenomenon has been leading to unacceptable strain on key public services such as schools and social services. Why has nothing been done, apart from the setting up of a meeting?

The Secretary of State—

Madam Deputy Speaker (Sylvia Heal): Order. The hon. Gentleman’s time is up.

John Healey: It is inflation-busting grant rises that I have announced today, not inflation-busting council tax rises. I am proud of the 10 years of a Labour Government. I am proud of the commitment that we have given to local government. I am proud of the fact that, to date, local government has received a 39 per cent. real-terms increase in funding from central Government, and I am proud of the fact that that is in stark contrast to the 7 per cent. real-terms cut that local government had to endure for the four years of the previous Government, before 1997.

This is a tight settlement. It is a tight settlement for local government, and it is a tight settlement for central Government. But there are areas of central Government, including work and pensions, revenue and customs and enterprise, which have experienced year-on-year cuts, not the year-on-year rises that I have been able to announce for local government today.

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The hon. Gentleman asked me a number of specific questions. Let me try to answer them. He asked whether I had heard from the heads of social services departments, and quoted one in particular. Let me quote the response of their representative body to the comprehensive spending review. The Association of Directors of Social Services said:

The hon. Gentleman asked about the local authority business growth incentive. I introduced it from the Treasury, and we could not have been clearer from the start that it was a three-year scheme that we would review and seek to build into the mainstream funding system—which we will do over the spending review period, and for which purpose £150 million is allocated over that period.

The area-based grant is a larger fund than the current area fund. As a result of my proposals, more funding streams will go through it. Each will be a single payment made each month to local authorities, and all will be un-ring-fenced.

I was disappointed to hear the hon. Gentleman’s grudging comments on concessionary travel. I would have expected him to welcome the fact that 11 million pensioners and disabled people will benefit from free travel. I was also disappointed that he did not recognise that we are providing the funding—over £200 million in each of the coming years—and doing what local government wanted by paying it as a specific grant rather than through the formula.

The settlement builds on our strong track record of commitment to and funding for local government over the past 10 years, which is extended further through this spending review period, but it is not just about cash. Local government asked for certainty, and we have delivered it. Local government asked for greater stability, and we have delivered it. Local government asked for greater flexibility, and we are delivering that too.

Finally, let me return to the point with which the hon. Gentleman began: his council tax rise predictions. There is a certain regular choreography about the annual settlements. We have heard before from the Opposition their predictions of settlements and their impact on council tax. In 2004 the hon. Gentleman’s boss, the hon. Member for Brentwood and Ongar (Mr. Pickles), predicted a 6.7 per cent. increase; the increase was 4.2 per cent. The following year he predicted a 7.1 per cent. increase; the increase was 4.5 per cent. I could not find any predictions for 2006, and I thought that the hon. Gentleman might have learnt his lesson—but the hon. Member for North-East Bedfordshire (Alistair Burt) obviously has not.

Increased funding and capping action have delivered three of the four lowest council tax rises in the past three years since council tax was introduced in 1993. That combination—real increases in funding for local government, and a determination to take tough capping action as necessary—will continue over the next three years.

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